Saturday
Jul092011
by 
Bishop Hill
Bishop Hill Gas prices
Jul 9, 2011 Energy: costs Help me with something, dear readers. UK retail gas prices are going up by 20%, apparently because of a hike in wholesale prices caused by turmoil in Libya and demand in Asia. Yet when I look at this chart of US prices, I see no sign of any recent hike worth the mentioning.
Is this because the UK wholesale market is very different? Where can I find a graph of UK wholesale prices? Is some other factor other than supply and demand involved?
I find it hard to equate the vast new supplies coming on line from shale gas deposits with the prices hikes we are seeing.
Reader Comments (81)
Look at the longer term.
Hi Zed,
wow, is there no beginning to your knowledge on so many subjects.
So beautifully said, simonW You have put your finger exactly on the truth!
Don't know about uk gas futures, but the us is showing a strong contango, much stronger than oil ......................
http://mazamascience.com/Market/Futures/
http://mazamascience.com/Market/FuturesChainDatabrowser/output/94e8fb301f581254517ef4b00f07d50050dd107f.png
......................... 4.30$ now and 5.80$/mcf in 2015
Looking at the info at the ICE there is no trade beyond may 2012 which seems odd! - but then I am not familiar with this exchange
All electricity suppliers are required by law to purchase 10% renewable energy (1 kwh normal energy costs 9p, renewable costs 45p making everyone's bills 40% higher).
Big Question. Where are they getting it from? UK renewables are unlikely to supply more than 1-2% of grid electricity. I assume they simply treat the remaining 8% (from conventional sources) as 'renewable' and charge five times as much for it!
We are being seriously ripped off.
looking at the rather limited ICE data aug 2011 gas is 56p and may 2012 is at 67p, so it looks like there is a contango in the uk - which implies that prices will have to go up about 20% over the next year or so in the uk; however with inflation at 5% this reduces to 15% in real terms
But if teh £ falls back to its may 2010 lows then this could add 10% to the price
http://stockcharts.com/c-sc/sc?s=$XBP&p=D&yr=3&mn=0&dy=0&i=t37775073579&r=8133
Longer term there is the possibolity shale gas will come to our aid and in teh medium term the opening of the Nabucco pipeline in 2017 (if it gets built)
http://en.wikipedia.org/wiki/Nabucco_pipeline
@Philip Foster
"All electricity suppliers are required by law to purchase 10% renewable energy..."
What happens if renewables doesn't reach 10% of demand?
A great question and one that needs answered.
There was a while, in 2008, when it looked like natural gas prices were going to have a single world price (other than for transport costs). It looked like the US was going to have to import all its incremental natural gas needs, and LNG facilities were proposed on all US coasts.
Then the shale gas phenomenon hit. Now, natural gas prices are down by 2/3s from their peak in 2008. With the huge potential demand of the US market market no longer relevant, LNG prices are lower, and at the margin are set by demand in places like the UK. Perhaps the UK is going to be linked more closely with the Persian Gulf, this time for LNG? Get out your wallets.....
Slightly off-topic - but in all the 'greenest government ever' arguments put forward by CallMeDave, who just sighs and shrugs his shoulders when British gas et al stick their prices up into the stratosphere - can some one remind him that in Venezuela petrol costs 1.4 pence a litre....?
Same planet, I believe....
Jul 10, 2011 at 4:24 PM | RoyFOMR
"What happens if renewables doesn't reach 10% of demand?
A great question and one that needs answered."
It is possible that the answer to that question is here:
Ofgem report
Renewables Obligation: Annual Report 2009-10
1 March 2011
see http://tinyurl.com/6h8hemw
I tried to understand this but it seems that the "10% to be from renewable sources" is a red herring designed by "The Great and the Good" to mislead the peasants.
Just putting Scotland and NI to one side, the proportion applied for the year 2009-10 obligation period was 9.7 ROCs per 100 MWh supplied by licensed electricity suppliers in England & Wales. This is where the "10%" comes from, because 1 ROC represents about 1 MWh of renewable generation.
It seems that Ofgem get sales figures from the licensed electricity suppliers in "number of MWh sold", divides this by 100 and then demands 9.7 times that number as bits of paper and/or cash @ £x.00/bit of paper to get to the correct number for each of the licensed electricity suppliers.
The licensed electricity suppliers then produce either :
(a) the correct number of bits of paper, by buying them at auction and/or from their own subsidy farms,
(b) a mixture of "not enough" bits of paper + cash to make up the shortfall of bits of paper @ £x.00/bit of paper, or
(c) all cash to make up their ration of bits of paper @ £x.00/bit of paper.
Of the 33 suppliers in England Wales with an obligation under the RO, five complied using just ROCs and 13 entirely through buy-out payments, presumably the other 15 by a mixture of bits and paper plus cash.
Thus, the penetration of "renewable" generation is irrelevant because the licensed electricity suppliers pay according to whatever the number of bits of paper (9.7 for 2009/10 as set by the government) are required per 100 MWh sold by them.
In England & Wales the level for 2010-11 is 11.1 ROCs per 100 MWh and in 2011-12 it will be 12.4 ROCs per 100 MWh. - see http://tinyurl.com/6bjclxc
The idea is that the licensed electricity suppliers should become subsidy farmers so that these penalty payments are reduced/eliminated, but it seems most of them are not interested because they are able to pass the penalty costs directly onto their customers.
Trebles all round!
jv
What are "dependable" renewables, please?
Jul 10, 2011 at 8:04 AM | Mike Jackson
"Methinks there was just a hint of sarcasm in jv's comment...."
Indeed. I feel bad for the people of the UK who are feeling the screws tightening down on them. On one hand they will have higher taxes and costs to pay for the madness and businesses will soon start moving out of the country to avoid those costs. Mean while renewables have been a dismal failure.
Thanks for the link brownedoff. So if my understanding is correct the buyout price in 2010-11 is £36.99 per ROC and the level for 2010-11 is 11.1 ROCs per 100 MWh and in 2011-12 it will be 12.4 ROCs per 100 MWh.
Interesting that "Up until March 2009, each ROC represented one megawatt hour MWh of electricity". It's now 100 MWh!
What a strange New World we live in.
It would be interesting to know how the value of 100 MWh versus £36.99 compares to what the power companies get and what the consumer pays.
Looks to me like the only 'obligation' that matters here is that of the consumer being able to pay the bill!
Apart from the fact there's a penny change out of £40 we're clearly between a ROC and a hard place
The simple reason for the rise is Gas price IS Climate Change Legislation. Simple!
What about refusing to pay our bills until they are presented in a transparent way - ie with "green" taxes shown.
@Mr B
"The simple reason for the rise is Gas price IS Climate Change Legislation. Simple!"
It's certainly an excuse for the main reason.
Greed!
Or it could be that gas for may 2012 delivery will cost 67p as opposed to 56p for aug 2011 -ie 20% higher
https://www.theice.com/productguide/ProductDetails.shtml?specId=910
THe germans shutting down nuclear production will have an impact on prices; i dont know if this is already factored into the 67p
1) LNG comes from the Gulf to either Milford Haven or Isle of Grain (Kent) by LNG tanker. This has been going on for a number of years and is ramping up all the time. Currently over 104 LNG tankers commute between the Gulf & the UK.
2) Shortly another massive Gas to Liquid plant in Dohar will come on line (the project was done in two halves - it was too big to do in one shot as there are not enought engineers and techs in the world to have serviced it all in one go - there's some 40000 staff on site at Doha now).
3) Morecombe Bay gas field has been shut by Centrica following Dave's smash & grab on the UK's oil industry (an EXTRA 5% tax on Oil & Gas plants in the UK).
4) The watermelons are trying to stop fracking in the UK (and perhaps more importantly Poland) - as usual lots of fud and no engineering/science from the ludites. The UK is sat on at least as much shale gas as coal - ie reserves out to 300 years AT LEAST
The vast majority of the recent increase in domestic power bills is down simply to TAX - mostly GREEN TAX.
The Electricity generating companies have recently been given outline permission to build a large number of GAS power stations to provide the spinning reserve that MUST be in place for every useless wind turbine built. Thus we get to pay for each wind turbine built (government subsidies) AND for the gas power station that has to be built for when the wind don't blow. (Some one please explain to me how this makes any sense especially if you are supposedly trying to cut CO2 emissions ? The ONLY thing this seems to do is to guarantee that electricity prices HAVE to go up to cover the expense of running an efficient plant inefficiently to gain subsidy payments from the useless wind turbines)
To see instantaneous generation figures by technology (derived from the official UK site) look here
http://www.gridwatch.templar.co.uk/
Note that the max wind output is just over 2GW. When the wind is not blowing the difference has to be made up by spinning reserve. When the windmills manage maximum output the spinning reserve HAS TO KEEP RUNNING in case the wind stops again. It is interesting to see how often the wind turbines manage to get over 1GW. and yes - if the wind blows and the wind turbines spin National Grid HAVE TO use the wind generated output; so CHEAPER generation gets dropped (but is still has to keep running; you can't just turn off a turbine)
(useless - an engineering term that means HAS NO PURPOSE - anything useless invariable has a large financial penalty involved in using it. Wind turbines are currently a good example of this)
Heading Out refers to the NYTimes article. This article is pretty much a hatchet job against the NG industry:
http://www.masterresource.org/2011/06/shale-gas-nyt-vs-energyindepth/
I find the Oil & Gas Journal has the best graphs. Don't know if they will have a UK gas wholesale price graph but you can always check if you can get through the subscribing lark.
peterdtm wrote:
quote
4) The watermelons are trying to stop fracking in the UK (and perhaps more importantly Poland) - as usual lots of fud and no engineering/science from the ludites. The UK is sat on at least as much shale gas as coal - ie reserves out to 300 years AT LEAST
unquote
I find that a surprising figure -- I thought that we only have small shale gas reserves. The fact that Poland can start exporting should give hope, although no doubt the green nutters will do their best to make our lives more expensive.
And the next Assessment report farce is gathering momentum day by day. I've written to my MP to get some sort of sense from the Minister for Climate Change, Windmills and Freezing Old People. Maybe if more people start picking at the renewables/poor science/rich get rich/industrywillflee sores then the politicians will get the idea.
Here's what I wanted my MP (West Suffolk) to ask:
(start question)
In a recent letter to the Financial Times, Ottmar Edenhofer, co-chair of IPCC Working Group III, states that "The IPCC has now approved a formal policy on conflicts of interest as recommended by the InterAcademy Council, a network of national science councils. This is an already endorsed increment in a pervasive system and is not a first step in a whole new area. Our new special report on renewables continues the tradition of balanced, thorough assessments at the IPCC."
He fails to mention in that letter that the new policy will only be implemented in 2014, not in time for the next major report, and that it covers only financial conflicts.
Does the Minister agree that, in a matter of such international financial importance as an IPCC Assessment Report, it is vital that the procedure is seen to be above criticism? Does he agree that the conflicts of interest covered by the policy should be extended to scientific matters, so that Lead Authors are not put in the position of judging the worth of their own work and rejecting criticism of that work? Does he further agree that the improved and extended policy should be implemented immediately, even if that means a delay in the production of the next report, and that a report produced without a new and robust conflict of interest policy in place should be rejected by Her Majesty's Government?
(end question)
I won't hold my breath.
JF
I'm afraid it's just another manifestation of "Rip-off Britain". For instance, I read a letter to a car mag the other day, pointing out that the same model, nominally British, car was 30% cheaper in the US. I once worked on a project requiring very large industrial fans. The UK suppliers told me that they couldn't buy the motors for these fans in the UK at competitive prices; they had to start up companies on the mainland and buy them there.
The issue with gas is that in the UK the total amount of available gas storage amounts to just a few days of inland consumption. With oil it's months rather than days. The upshot is that if there is a surplus of gas, it cannot be stashed. It must thus be either consumed somehow, which if discounted to some low enough price it will be, or alternatively the producer stops producing.
LNG could in theory go some way to allowing local surpluses or shortages to be balanced inter-regionally, becausee it permits gas to be moved over distances longer than those across which pipelines are practical. but there is limited liquefaction capacity. This is because the volumes involved are so large that nobody builds liquefaction plant unless you've tied up most of the customers for it first. So far as I know there are no merchant LNG plants out there, speculatively chilling and storing gas and hoping for customers.
This in turn means that there is little spare liquefaction capacity, so if you get a regional shortage it is not a matter of buying a few shiploads from a liquefier, but of finding out who the term lifters are and buying one of their cargoes off them. And in any case the volumes we're talking about are fairly trivial compared to nationallevels of demand.
Thus US, UK and mainland European prices need not be that correlated. A few years ago Russia cut off Ukraine's gas supply. In an oil market that would have instantly caused oil to flow from places of surplus towards Ukraine, but with gas, everyone else's price remained unaffected. No matter how much Ukraine wanted to pay it was never going to be possible to move US gas to Ukraine.
I suspect because of the logistical issues that a lot of gas is bought on long term contracts. The fact that gas for delivery in the future is costly rather suggests that long term supplies have something priced into them that makes them more expensive. The only thing I can think of is higher demand due to CO2 targets set upon power stations.
Jul 11, 2011 at 9:48 AM | Justice4Rinka
.. in the UK the total amount of available gas storage amounts to just a few days of inland consumption. With oil it's months rather than days. The upshot is that if there is a surplus of gas, it cannot be stashed.
With coal and nuclear it is years rather than months.
Funny enough I was looking at this to comment over at WUWT and came across this :-
http://www.parliament.uk/business/publications/research/key-issues-for-the-new-parliament/green-growth/energy-price-rises/
Not sure if it's helpful but the bottom graph with the fuel poverty figures is intresting.
In January, I had a letter, via my MP, from Huhne's department on the subject of energy prices. An extract:
"I do understand [your consituent's] concerns about energy prices. It is important that consumers have lowest possible energy bills, consistent with the need to invest to reduce carbon emissions from energy and ensure security of supply.
With regard to the relationship between wholesale and retail prices, supply companies buy their gas and electricity considerably in advance from the wholesale market. They can start contracting for gas to up to two years before it is due for delivery. The costs that energy companies face for gas delivered today versus two years ago can be dramatically different depending on their buying strategies. For example if suppliers buy their gas over an 18 month period, their average costs will have fallen by 23% over the two years to January, but if they buy it over a 24 month period their average costs would only have fallen by 11% over the same period. Overall, retail prices to consumers also flatten out the volatile peaks and troughs in wholesale prices, with retail prices falling by 7% the two years to January.
Suppliers also face considerable costs that are not related to the wholesale purchase of
energy. These include costs for use of the transmission and distribution networks, the
costs of metering and operating costs of the business."
... and the green taxes, he could have added.
Jul 11, 2011 at 9:48 AM | Justice4Rinka
".. in the UK the total amount of available gas storage amounts to just a few days of inland consumption. With oil it's months rather than days. The upshot is that if there is a surplus of gas, it cannot be stashed. "
I can't lay my hands on the reference at the moment, but when I wrote to my MP about this in the context of security of supply, I got a brush off reply in which it was claimed that we had "months" of supply, a claim also made in one Newsnight episode I watched. It appears the Dept for Fantasies is using the N Sea Gas fields in the calculation.
How long before the message finally gets through that there is no pressing need for the UK to "reduce carbon emissions" and if they are desperate to reduce carbon dioxide emissions there are technologies that will do that (of which nuclear power is one) and that the UK is already energy-secure if it cares to make use of the coal and shale oil it's sitting on.
There is nothing secure about a technology that (a) only works one-third of the time and (b) requires expensive back-up systems that need to be kept running permanently to take up the slack instantly for the other two-thirds.
As I have said before, I must be missing something but I'm blowed if I can see what it is!
... consistent with the need to invest to reduce carbon emissions from energy and ensure security of supply.
/end quote
it's about understanding what the figures mean.
Huhune believes that a wind turbine rated at 3MW delivers 3MW - just like a real electricity generator would (well; almost). He seems unable to understand that - in the UK - a wind turbine produces ON AVERAGE 24% of its rated capacity.
Nor does he (and his ludite friends) understand the damage a random varying supply does to the the grid infrastructure.
The ludites also seem to think that the UK produces a meaningful amount of CO2 - we don't; it won't affect global man made output of CO2 one hap'eth if the UK stopped ALL CO2 production tomorrow. - apart from ANY reduction in industrial CO2 output WILL contribute to driving our competitiveness further down and directly remove jobs from the work force.
No one in government is prepared to admit exactly how much extra tax is being taken from the UK power bill.
You could try writing to you MP and ask explicitly for the tax break down on our energy supply; and demand that this be shown in all bills.
Once Ofgas (as it was then) insisted that a premium fuel (gas) could be wasted by being burnt to produce electricity in power stations, significant price rises became inevitable.
The UK has the (depleted) Rough field as its major storage. It can hold approx 5% of UK annual consumption. (More if Global warming causes milder winters).
LinePack (i.e. gas already in the transmission system) is worth about 3 days' supply.
Whenever the price of gas pops up, I am always reminded of the ironies of life out there which *this* seems to epitomise, and the ecozealots strategically choose to ignore stuff like this unless it fits with their watermelon agenda.
Anyway, Putin's pipeline across the Baltic is just about up, so the bogey men at BG will be able to blame the Ivans when they dial in their bonuses...
And its no good thinking of getting a coal fire ........................ the spot price is loosely linked to oil and is currently 85$/t on nymex and rising
http://www.infomine.com/ChartsAndData/GraphEngine.ashx?z=f&gf=110557.USD.mt|110537.USD.bbl&df=19110101&dt=20110713
and we find http://af.reuters.com/article/commoditiesNews/idAFL6E7I512720110705?sp=true
"Euro Coal-Futures rise above $130/tonne Tue Jul 5, 2011 3:55pm GMT ( for april 2012 delivery)
* Rise is in line with power, gas
* Disconnected from oil
* Coal power premium over gas rises to 10 euros .................................... more"